On Thursday, Piper Sandler analysts adjusted their outlook on Hershey shares, citing increased cocoa cost risks. The firm reduced its price target on Hershey (NYSE:HSY) to $153.00, down from the previous $168.00, while retaining a Neutral stance on the stock. Trading near its 52-week low of $150.31, the stock has recently entered oversold territory according to InvestingPro analysis.
The analysts noted the update was due to the anticipated rise in cocoa input costs in the second half of 2025 and extended into 2026.
Cocoa futures have seen a sharp increase and are maintaining high levels, with indications of sustained cost pressure for the next couple of years. Hershey employs options to hedge against cocoa derivatives, which have shown movements parallel to cocoa futures.
This financial strategy is pertinent as the company navigates through the volatile pricing of key commodities. Despite market challenges, InvestingPro data shows Hershey has maintained dividend payments for 54 consecutive years, demonstrating remarkable financial resilience.
The analysis also included an observation of Hershey's retail performance in North America. The company's Confectionery and Salty Snacks segments witnessed improved sequential top-line momentum in the fourth quarter of 2024. Despite this positive retail development, the anticipated cost pressures led to a revision of Hershey's earnings projections.
Piper Sandler has lowered their earnings per share (EPS) estimate for Hershey for the year 2025 from $8.15 to $7.95 and for 2026 from $9.35 to $8.50. The new price target of $153 is based on an unchanged multiple of approximately 18 times the firm's revised 2026 earnings per share estimate. Currently trading at a P/E ratio of 17.3x, the stock appears undervalued according to InvestingPro's Fair Value model, with analyst targets ranging from $150 to $222.
This adjustment reflects the analysts' assessment of Hershey's financial outlook in light of the expected increase in input costs. For deeper insights into Hershey's valuation and over 30 additional financial metrics, explore the comprehensive Pro Research Report available on InvestingPro.
In other recent news, Hershey is facing significant developments. The company is bracing for its fourth-quarter earnings announcement for 2024, with expectations aligned with previous forecasts. However, Citi analyst Thomas Palmer maintains a Sell rating on Hershey due to concerns about rising cocoa inflation potentially impacting the company's performance in 2025 and 2026. Hershey's decision to hedge over 40% of its annual cocoa needs, at a time when cocoa futures are near record highs, has been flagged as a potential concern by Palmer.
Simultaneously, Hershey is undergoing a leadership transition, with CEO Michele Buck set to retire in June 2026. The company has begun the search for a new CEO, aiming to complete the transition by July 2026. Amidst this leadership change, Hershey is grappling with global cocoa shortages and escalating prices, prompting the company to seek regulatory approval to purchase over 90,000 metric tons of cocoa, a substantial increase from current limits.
In analyst reviews, JPMorgan (NYSE:JPM) and Citi have maintained neutral and sell ratings on Hershey shares, respectively, while BofA has reinstated Hershey with a neutral rating. These ratings reflect concerns about the impact of high cocoa prices on Hershey's earnings.
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